A US federal judge authorized the seizure of Citgo Petroleum Corp., the subsidiary of Venezuelan state oil company PDVSA, to satisfy a debt of the Venezuelan government, reports the Wall Street Journal.
The ruling could trigger a dispute between Venezuela's many unpaid creditors to wrest control of their only visibly unalienable US asset, the report said.
Judge Leonard P. Stark of the United States District Court in Wilmington, Delaware, issued the ruling Thursday. However, his complete opinion, which could include conditions or impose more legal obstacles, was sealed. A redacted version is expected to be available at a later date, say journalists Andrew Scurria and Julie Wernau, who report the news.
The ruling increases the likelihood that the Venezuelan state oil company will lose control of a valuable foreign asset in the midst of the country's economic and political crisis, although the decision could be appealed to a higher federal court, it said.
The lawyers of PDVSA were not available to comment. Citgo declined to comment, reports the WSJ.
Crystallex International Corp., is a missing Canadian gold mining company that filed a legal action, trying to collect a judgment against the Venezuelan government for lost mining rights, and to that end it has focused on Citgo, an oil refinery, because it is the Largest active in the United States of the Latin American nation drowned liquidity problems and wrapped up in a crisis.
Other Venezuelan creditors are also stalking Citgo, but Crystallex is the first to win a ruling authorizing its seizure, says the WSJ.
Crystallex had argued that Citgo is owned by PDVSA, which is an "alter ego" of Venezuela and as such is responsible for the debts of the South American country. According to Scurria and Wernau, the decision of the judge in favor of Crystallex allows him to take control of the actions of the parent company of Citgo based in the US, which would be the first step towards the sale of the company.
The information indicates that Venezuela and its various entities controlled by the state have altogether $ 62 billion in outstanding unsecured bonds, with approximately $ 5 billion so far in unpaid interest and principal, and that according to estimates of analysts the government has approximately a total of $ 150 billion in outstanding debt with creditors around the world.
Venezuela and its state-controlled entities, including PDVSA, began to default on bond payments last year and since then a generalized default has fallen. US sanctions prohibit creditors from engaging the Venezuelan government in any type of restructuring or purchase of new debt.
"For Venezuela, losing control of Citgo could jeopardize one of its only sources of oil revenues, (ie) the US At the same time, investors in Venezuela's default debt – as well as at least 43 companies that legally sue the government – run the risk of losing one of the few obvious assets in the US that can be confiscated for reimbursement, "explains the WSJ.
The only payment made this year by Venezuela was $ 107 million in its PDVSA bonds, due in 2020, for which Citgo has been pledged as collateral. That was a clear move by Caracas to protect that asset, according to analysts.
Without the ownership of Citgo, investors fear that PDVSA has little incentive to continue paying the debt
Any sale of Citgo shares would require the approval of the US Treasury Department, and Crystallex has to eliminate other legal obstacles before it can sell the shares.
Scurria and Wernau say that "In trying to claim Citgo, the creditors follow a family playbook," referring to hedge funds run by Elliott Management Corp. that did something similar when they looked for Argentine assets after the 2001 default. that country, the biggest sovereign default at that time, in more than $ 80 billion in sovereign debt.
When Argentina refused to pay the agreements resulting from the breach, the hedge funds searched for Argentine assets to seize, arguing that everything from the assets of its central bank to its state oil company was an "alter ego" of the state.
Elliott in 2012 persuaded a Ghanaian court to seize a training ship from the Argentine Navy, and in 2014 asked a California court to prevent Argentina from launching satellites into space. Argentina reached an agreement with the hedge funds in 2016, delivering gains of up to 900% on some of its original principal investments.